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Medical Necessity and Payment: Who Decides?

There is nothing readily understood about the term medical necessity. In healthcare it is the “overarching criterion for payment”. There is no payment for services or supplies if there is no medical necessity to support it. Today, every provider at some time is faced with a denial because of lack of medical necessity. Physician providers will usually hear that payors do not get in the way of the physician-patient relationship. Payors typically state that they never tell a physician how to practice medicine and a denial based on lack of medical necessity is for purposes of payment only. However, what provider, on a routine basis, will continue to order care and services which medically unacceptable and not supported for payment purposes?

The definition of medical necessity varies from one commercial plan to another. Federal law such as Medicare has its definition and so does state law under programs such as Medicaid. Various medical associations such as the AMA also define medical necessity.

Generally, medical necessity refers to services or supplies which are required for the treatment of an illness, injury, diseased condition or impairment and which is consistent with a patient’s diagnosis or symptoms and are in accordance with generally accepted standards of medical practice. Services or supplies must not be ordered only as a convenience to the patient or provider. Of course care and services which are investigational or unproven are not considered medically necessary.

Who defines “generally accepted standards of medical practice”? The accepted medical practice standards are those based on credible scientific evidence published in peer-reviewed medical literature which is generally recognized by the relevant medical community. It encompasses physician and healthcare provider specialty society recommendations. It takes into consideration providers practicing in relevant clinical areas, but it does not speak too much about a physician’s judgment call for an individual patient. Payors seem to rely on evidence based studies and standards as the backbone of their medical necessity criteria, including managing costs.

Accurate clinical documentation across all of the different delivery systems of care is the best evidence of showing medical necessity. Documentation is key and should support the level of service reported. Staying within the bounds of medical necessity for a healthcare provider is always asking if there is a clear medical reason to order the procedure, study or test.

Patients generally believe everything their physician recommends for them is “medically necessary.” Patients assume that what their physician recommends for them meets standards of practice and therefore are evidence-based. The burden to stay abreast about traditional and nontraditional methods for diagnosing and treating is daunting to the busy practitioner especially to a provider in a small practice.

Is medical necessity needed or is it just being used by payors as a way to control costs and resources? The burden is on physicians to define it and use it, yet accepted medical practice is increasing based on national evidence based standards which is difficult for community based providers to track. Perhaps there will be an attempt to have a more unified approach to medical necessity criterion which could lead to better outcomes and facilitate a more logical payment system.

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Health law is the federal, state, and local law, rules, regulations and other jurisprudence among providers, payers and vendors to the healthcare industry and its patient and delivery of health care services; all with an emphasis on operations, regulatory and transactional legal issues.

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